New rules for VAT

VAT: New rules on the place of supply of services and a new procedure for VAT refunds

Two Directives, one on the place of supply of services, the other on VAT refunds, were adopted by the EU Council of Ministers on 12 February 2008. They will ensure that VAT on services will accrue to the country of consumption, and will establish a new procedure for claiming VAT refunds to ensure quicker processing. For more information see the press release (IP/08/208)

From 1 January 2010, the new rules on theplace of supply of services will mean that business-to-business supplies of services will be taxed where the customer is situated, rather than where the supplier is located. For business-to-consumer supplies of services, the place of taxation will continue to be where the supplier is established.However, in certain circumstances, the general rules for supplies both to businesses and to consumers will not be applicable and specific rules will apply to reflect the principle of taxation at the place of consumption. These exceptions concern services such as restaurant and catering services, the hiring of means of transport, cultural, sporting, scientific and educational services, and telecommunications, broadcasting and electronic services supplied to consumers. For further information see the Directive

Also from 1 January 2010, the current procedure for reimbursement of VAT incurred by EU businesses in Member States where they are not established will be replaced by a new fully electronic procedure, thereby ensuring a quicker refund to claimants. The current paper-based procedure is slow, cumbersome, and costly. It also lacks in legal certainty. The new procedure will better facilitate businesses and improve the functioning of the internal market. A new feature is that businesses will be paid interest if Member States are late making refunds. For further information see the Directive.

See also the Regulation on administrative co-operation

VAT: Clearer overview of Community VAT legislation currently in force

The essential piece of EU VAT legislation since 1 January 2007 has been Directive 2006/112/EC. That 'VAT Directive' is effectively a recast of the Sixth VAT Directive of 1977 as amended over the years. The recast brings together various provisions in a single piece of legislation. It provides a clearer overview of EU VAT legislation currently in force.

As it is usual practice, the Directive contains a correlation table providing the bridge between the provisions of the Sixth VAT Directive and those of the new Directive. This table features at the end of the Directive

VAT: Commission has proposed to authorise Romania to apply a reduced rate of VAT to certain labour-intensive services

On 28 November 2006, the European Commission issued a proposal for a Council Decision authorising Romania to apply a reduced rate of VAT to certain labour-intensive services. For further information see the proposal (COM(2006) 736

VAT: More effective and transparent simplification and anti-evasion rules.

Article 395 of the VAT Directive (Article 27 of the Sixth VAT Directive) lready allows Member States to apply special rules derogating from the provisions of that Directive. However, the process of obtaining a derogation is cumbersome, with periodic renewals also required. As some derogations have proved successful in countering avoidance and evasion, and deal with problems common to a number of Member States, the Commission believes it to be appropriate that all Member States should be able to apply them without having to seek individual authorisations. Directive 2006/69/EC achieves this by providing a permanent harmonised alternative treatment as an option within the Sixth Directive. This gives Member States the choice over whether they need to adopt the rule but at the same time allows them to do so quickly if necessary.

The new Directive permits Member States to:

At the same time, 21 existing derogations are repealed (in one case part repealed) - either specifically or automatically by virtue of the Directive coming into force. The ability of Member States to apply for further derogations under Article 27 remains unaffected by the Directive.

Businesses should find the new situation more transparent as the alternative rules are clearly set out in the main Directive and they will not have to identify the relevant Decisions for each Member State. In addition, because Member States have flexibility in the application of the measures, the rules are capable of being targeted.

VAT: reduced rates of VAT on labour intensive services until 2010

The Council on 14 February 2006 adopted a Directive enabling Member States to apply reduced rates of value-added tax for certain labour-intensive services until 2010. Those Member States which applied a reduced rate on these services on 31 December 2005 may continue to apply the reduced rate of VAT until 31 December 2010. Those Member States which did not previously apply these reduced rates have until March 31 st to inform the Commission that they would like to introduce the measure.

This Directive, which amends Directive 77/388/EEC, extends the validity of annex K of that Directive until 31 December 2010.

In addition, it authorises Member States, once they have had the agreement of the Commission, to apply a reduced rate of VAT to supplies of district heating

Finally, the Directive invites the Commission to present, by June 2007, a report providing an assessment of the impact of reduced rates applied to locally-provided services, including restaurant services, in terms notably of job creation, economic growth and the internal market, on the basis of a study to be carried out by an independent economic think-tank.

See also: Contract Award notices

Specifications and annex  attached to the invitation to tender.

The Directive is applicable from 1 January 2006.  The Directive is based on a Commission proposal of July 2003.

The text of the implementing Directive is here. See the press release of the Council.